APHA Short Positions + Naked Shorting Explained

What is Naked Short Selling?

Before we get into Naked Short Selling let’s understand the basic premises around short selling.

Short selling is the sale of a security that is not owned by the seller.

The motivation for short selling is an investor's belief that a stock's price will decline, enabling the short seller to buy the stock back in the future at a lower price and make a profit.

Normally, when one short sells a stock, their broker will lend them the shares to sell. The loaned stock will come from the broker's own inventory, from another one of the firm's customers, or from another brokerage firm. The shares are sold and the proceeds are credited to the short seller's account.

As payment for borrowing the shares, the short seller is charged a fee, quoted as an annualized percentage of the value of the loaned securities - i.e. a borrower of a stock with a 5% stock borrow rate will be charged $5 per year for every $100 of stock borrowed. Stock borrow rates change daily based in large part on the supply and demand to borrow that particular stock.

If the number of shares available to borrow is in short supply and/or great demand (which is often the case in highly shorted stocks), finding shares to borrow can be difficult and expensive.

A frequently asked question 

How does naked short selling affect the stock market?

When a seller "naked short sells a stock" they do not own the shares they are selling and therefore are selling artificial shares. This is like counterfeiting a stock. This process creates an obvious unfair advantage to the seller and an imbalance in the market as the sell side is now increased with more shares – many of which are counterfeit. There is a time limit on how long the seller can sell these shares and be naked on the trade and the time limit is 3 days. This is where the RegSho rules come in and the data we track. If the sellers broker-dealer has not located a borrow to cover this short trade within 3 days they will need to purchase back the shares they have sold on the open market. This process is referred to as a "Buy In".

"When it comes to illicit short selling, the shorts win over 90% of the time"

Naked Short – A license to steal?

Naked short selling is yet another creation of the securities industry and is in essence nothing more than a license to create counterfeit shares. When you are inflating the amount of stock that is outstanding in a company, this is considered counterfeiting. The rules justify the practice by saying it helps create smooth, efficient and orderly markets. Same stuff we have heard countless times around high-frequency trading, but in reality we believe this practice leads to shady characters creating unlimited supplies of counterfeit stocks which in turn results in your investment continuing to decline and you wondering why?

I am sure you here because you are a shareholder in a company that just continues to go down, and you have no idea why. Nothing material has happened but the trading doesn’t make any sense. We hear it all the times. Most CEO’s don’t even understand, and are baffled. The worst part is, good luck getting anyone to listen! There is a major epidemic going on right now with naked short selling right now.

It's funny when we hear CEO's say , I will just buy all the shares up and own the whole O/S and they wont be able to short me anymore. Really?

Read about: Global Links Corporation and see what happened when Robert Simpson purchased 100% of Global Link’s 1,158,064 shares. Then you will truly understand how the system is rigged. 

How to Detect Naked Short Trades

There are many tell tale signs that a company is being naked short sold. Do you think your company or investment is under attack? Here is what you should keep your eye out on:

1. Has the stock been on a continual downtrend over the past several months with no material events or known reasons for why it has depreciated?

2. Does the stock see downwards pressure anytime the company outs out a press release?

3. Do you notice any unscrupulous posts or new handles popping in bashing the company, it’s story or management? It is common for short sellers – both regular and naked short sellers to hire bashers and deploy them on the stock message boards and social media.

4. Do you ever notice weird uneven trade lots? Example, someone traded 1,172 shares or an odd lot, but frequently? This is sometimes a way that market makers and short sellers communicate with each other in the marketplace without the evidence of a text message, email or recorded phone call.

5. Are you a company that has gotten phone calls from investors who all of a sudden seem curious in investing in your company? Be wary. We have seen this ploy come out of Germany many times in the past. Traders go short, knock the stock down in the process and come calling for a financing to cover their position. Another illegal tactic but it happens!

6. If you are a NASDAQ or NYSE company, rule of thumb is If you see more than 20% of your overall volume initiated short on a daily basis as reported by REGSHO and displayed on our website as per REGSHO guidelines and delivered by FINRA you may be under attack. If you are looking to track naked short selling on OTC companies please visit www.otcshortreport.com

Naked Short Selling and The Destruction it Costs

Death to the Company

Naked short selling kills the value of companies and peoples investments by artificially pushing a company’s stock price down. For smaller companies looking to raise working capital, this causes them to have to raise funds at much lower prices which substantially increases the outstanding share count. This is called dilution.

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Democratic takeover of the House may come with a consolation prize: recreational marijuana shops.

Residents of the nation’s capital get no vote in Congress, but the Democratic takeover of the House may come with a consolation prize: recreational marijuana shops.

D.C. Mayor Muriel E. Bowser (D), fresh off her reelection victory, said Wednesday she plans to introduce legislation early next year to legalize the sale of marijuana.

Voters in 2014 passed a ballot measure legalizing the possession of marijuana in small amounts. But House Republicans have blocked the city from spending money to regulate and tax marijuana.

That means District residents over 21 can legally grow and use marijuana, and possess up to two ounces. But it must be used and grown on private property and cannot be exchanged for money, goods or services. Residents cannot buy marijuana as they can in six states that have legalized the drug, and the District is not able to tax transactions, losing what could be millions in revenue annually.

The District has several dispensaries for registered patients who use medical marijuana.

But with Republicans losing control of the House, local elected officials hope the federal restrictions against recreational marijuana will end and that full legalization can commence.

We will prepare a tax-and-regulate scheme to present to the council at the beginning of the next year,” said Bowser at a city hall news conference outlining her second-term goals.

“We have an untenable situation in the District,” the mayor continued. “As long as we have the ability to possess marijuana, which is our law, we also need the ability to procure marijuana legally, which we don’t have now.”

She declined to offer further details.

Council member David Grosso (I-At Large) has already introduced legislation authorizing the city to license pot retailers.

But there’s no guarantee congressional hurdles will disappear. And there’s a complex path ahead before marijuana stores could open.

The restrictions on the District’s spending come as part of annual budget negotiations between the House and the Senate.

Rep. Andy Harris (R-Md.) is behind the anti-marijuana restrictions on the D.C. budget. But now that he will be in the minority, he probably won’t have the votes 

to push it through the House. A spokesman for Harris did not return a request for comment.

House Minority Leader Nancy Pelosi (D-Calif.) and Rep. Mike Quigley (D-Ill.), who is set to lead the panel overseeing District affairs, say they will oppose the anti-marijuana rider.

That means the future of the District marijuana laws hinges on a Republican Senate.

“The Senate doesn’t seem to care much,” said Del. Eleanor Holmes Norton (D), the District’s nonvoting representative in the House. “Let’s see how much they much they care now.”

She said it would be tougher to remove the other GOP House restriction on the District, which prevents it from using local funds to provide abortions to low-income women. Norton said pressure from antiabortion groups would make that difficult to reverse. But she hasn’t seen similar pressure on Senate Republicans regarding the city’s marijuana laws, particularly because some represent states that have legalized pot.

The anti-marijuana rider could be removed as early as next month, when a budget deadline is looming, but those prospects are dim, as Republicans are still in control of the House until January.

More likely, the issue would come up again in negotiations over the budget that takes effect on Oct. 1, 2019. If the Senate were to include D.C. marijuana restrictions in its spending bill, the issue would be part of negotiations between legislative leaders when they resolve differences.

Council Chairman Phil Mendelson (D) said he favors regulating the sale of marijuana — calling existing laws an “impossible paradox” — but worries the mayor may have jumped the gun. Some believe the congressional rider prohibits lawmakers from even considering legalization measures.

[D.C. briefly legalizes pot smoking in private clubs — and reversed themselves]

“If mayor sent down the bill, the first thing I would have to do is talk to my lawyers about whether and how we can proceed,” said Mendelson. “Am I supportive of moving forward with regulating? Yes, I am. It’s a question of how soon.”

Grosso says the city should go ahead and start debating full marijuana legalization despite the restrictions on the books. He and other advocates believe marijuana shops could open as early as 2020.

“I believe we should act as if Congress isn’t there and suffer the consequences, whatever they might be,” Grosso said. He offered a potential upside: “If they did come after us, it would be good PR for statehood for the District of Columbia.”

As timing has it, Norton also plans to push for a floor vote on a bill granting statehood to the District.

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